Local government and utility firms' debts

Marko Primorac, Faculty of Economics and Business, Zagreb, Croatia

AbstractThe global financial crisis has affected the Croatian local public sector. In such circumstances, local government units' debts and borrowing should be approached with caution. The highly interwoven financial operations of local government units and their utilities indicate the need for analysis of consolidated financial statements of local governments and utility companies in order to gain an insight into the real financial "health" of local units. Accordingly, the main aim of this paper is to analyze the size and the structure of the consolidated (local government and utility companies) local public debt in Croatia. Accordingly, the paper presents the financial position of local government units supplemented with information on the financial operations of utility companies, with particular emphasis on the size and structure of their liabilities and gross and net debt. Although the current Budget Law does not require formal preparation of consolidated financial statements by local governments and their utility firms, consolidation is stipulated by International Public Sector Accounting Standards (IPSAS). The application of IPSAS regulations would be helpful in determining overall direct and indirect exposure of local government units arising from the financial operations of their utilities.

Keywords: local government units' debts, utility companies' debts, the consolidation of financial statements of local units and utility companies, Croatia